Power and market government and the economy

Rothbard’s principles treatise Man, Economy, and State describes the economics of market exchange; Power and Market describes the economics of government inter- vention.1Rothbard makes i

GOVERNMENT AND THEECONOMY

MURRAY N ROTHBARD

FOURTHEDITION

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Ludwig von Mises Institute

A U B U R N , A L A B A M A

obtained from The Bridgeman Art Library (IND54176)

Copyright © 1970 by Institute for Humane Studies

Copyright © 1977 by Institute for Humane Studies, second edition

Copyright © 2004 by Ludwig von Mises Institute, third edition, Scholar’s Edition,

Man, Economy, and State with Power and Market

Copyright © 2006 by Ludwig von Mises Institute, fourth edition

All rights reserved Written permission must be secured from the publisher to use or reproduce any part of this book, except for brief quotations in critical reviews or articles.

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Young, Robert S Young

PREFACE TO THEFOURTHEDITION ix

CHAPTER1—DEFENSESERVICES ON THEFREEMARKET 1

CHAPTER2—FUNDAMENTALS OFINTERVENTION 1 Types of Intervention 11

2 Direct Effects of Intervention on Utility 15

A Intervention and Conflict 15

B Democracy and the Voluntary 19

C Utility and Resistance to Invasion 21

D The Argument from Envy 22

E Utility Ex Post 23

CHAPTER3—TRIANGULARINTERVENTION 1 Price Control 29

2 Product Control: Prohibition 40

3 Product Control: Grant of Monopolistic Privilege 43

A Compulsory Cartels 48

B Licenses 48

C Standards of Quality and Safety 50

D Tariffs 55

E Immigration Restrictions 61

F Child Labor Laws 65

G Conscription 67

H Minimum Wage Laws and Compulsory Unionism 68

I Subsidies to Unemployment 69

J Penalties on Market Forms 69

K Antitrust Laws .71

L Outlawing Basing-Point Pricing 75

M Conservation Laws 76

vii

N Patents 87

O Franchises and “Public Utilities” 92

P The Right of Eminent Domain 93

Q Bribery of Government Officials 95

R Policy Toward Monopoly 97

Appendix A: On Private Coinage 98

Appendix B: Coercion and Lebensraum 100

CHAPTER4—BINARYINTERVENTION: TAXATION 1 Introduction: Government Revenues and Expenditures 103

2 The Burdens and Benefits of Taxation and Expenditures 105

3 The Incidence and Effects of Taxation 110

Part I: Taxes on Incomes 110

A The General Sales Tax and the Laws of Incidence 110

B Partial Excise Taxes; Other Production Taxes 116

C General Effects of Income Taxation 118

D Particular Forms of Income Taxation 125

(1) Taxes on Wages 125

(2) Corporate Income Taxation 125

(3) “Excess” Profit Taxation 127

(4) The Capital Gains Problem 128

(5) Is a Tax on Consumption Possible? 134

4 The Incidence and Effects of Taxation 137

Part II: Taxation on Accumulated Capital 137

A Taxation on Gratuitous Transfers: Bequests and Gifts 139

B Property Taxation 139

C A Tax on Individual Wealth 144

5 The Incidence and Effects of Taxation 145

Part III: The Progressive Tax 145

6 The Incidence and Effects of Taxation 150

Part IV: The “Single Tax” on Ground Rent 150

7 Canons of “Justice” in Taxation 168

A The Just Tax and the Just Price 168

B Costs of Collection, Convenience, and Certainty 170

C Distribution of the Tax Burden 172

(1) Uniformity of Treatment 172

a Equality Before the Law: Tax Exemption 172

b The Impossibility of Uniformity 175

(2) The “Ability-to-Pay” Principle 178

a The Ambiguity of the Concept 178

b The Justice of the Standard 181

(3) Sacrifice Theory 185

(4) The Benefit Principle 190

(5) The Equal Tax and the Cost Principle 194

(6) Taxation “For Revenue Only” 198

(7) The Neutral Tax: A Summary 198

D Voluntary Contributions to Government 199

CHAPTER5—BINARYINTERVENTION: GOVERNMENT EXPENDITURES 1 Government Subsidies: Transfer Payments 207

2 Resource-Using Activities: Government Ownership versus Private Ownership 213

3 Resource-Using Activities: Socialism 226

4 The Myth of “Public” Ownership 230

5 Democracy 233

Appendix: The Role of Government Expenditures in National Product Statistics 246

CHAPTER6—ANTIMARKETETHICS: A PRAXEOLOGICAL CRITIQUE 1 Introduction: Praxeological Criticism of Ethics 251

2 Knowledge of Self-Interest: An Alleged Critical Assumption 254

3 The Problem of Immoral Choices 257

4 The Morality of Human Nature 260

5 The Impossibility of Equality 262

6 The Problem of Security 267

7 Alleged Joys of the Society of Status 269

8 Charity and Poverty 272

9 The Charge of “Selfish Materialism” 275

10 Back to the Jungle? 278

11 Power and Coercion 280

A “Other Forms of Coercion”: Economic Power 280

B Power Over Nature and Power Over Man 283

12 The Problem of Luck 287

13 The Traffic-Manager Analogy 288

14 Over- and Underdevelopment 288

15 The State and the Nature of Man 289

16 Human Rights and Property Rights 291

Appendix: Professor Oliver on Socioeconomic Goals 294

A The Attack on Natural Liberty 295

B The Attack on Freedom of Contract 298

C The Attack on Income According to Earnings 301

CHAPTER7—CONCLUSION: ECONOMICS ANDPUBLICPOLICY 1 Economics: Its Nature and Its Uses 311

2 Implicit Moralizing: The Failures of Welfare Economics 314

3 Economics and Social Ethics 317

4 The Market Principle and the Hegemonic Principle 319

INDEX 325

DIRECTIONS FORUSE: IF YOUhate the state, read this book Ifyou love the state, read this book! Students, educated laymen,

and academics can all profit from Power and Market In this

vol-ume, Murray N Rothbard uses positive economics to analyzevarious schemes and proposals to alter or eliminate market out-comes Where government supporters come up with numerousreasons why government “needs” to do this or that, Rothbardputs constraints on people’s political fantasies He shows howthe state is not a benign entity that can easily fix problems in theworld Rather, the state is an imperfect and inherently coerciveapparatus

Power and Market, now 35 years after its original publication,

is still one of the most systematic economic analyses of

govern-ment intervention around Rothbard’s principles treatise Man,

Economy, and State describes the economics of market exchange; Power and Market describes the economics of government inter-

vention.1Rothbard makes it clear that economics is a value freescience that provides no ultimate ethical judgments, but he alsopoints out that economics can be used to criticize certain posi-tions: “If an ethical goal can be shown to be self-contradictory

and conceptually impossible of fulfillment, then the goal is clearly

1 Rothbard originally wrote this volume as the final third of the

1,500-page manuscript for Man, Economy, and State The length of the

manu-script and the nonmainstream political conclusions in his analysis of

gov-ernment were too much for some, however, so Man, Economy, and State and Power and Market were published as separate volumes in 1962 and

xi

an absurd one and should be abandoned by all.”2 In certainways, the book could be considered an early example of publicchoice economics because it uses economics to analyze govern-ment, and it certainly takes the romance out of politics ButRothbard differed from public choice economists such as James

M Buchanan and Gordon Tullock (and, for that matter, all ofhis contemporaries) in that he consistently viewed the state as acoercive institution, an institution that was not created to makeeveryone better off.3

The central chapters of Power and Market offer a typology

and discussion of different types of state intervention Binaryintervention is when the state interferes directly with a privateparty (e.g., taxes and government spending), and triangularintervention is when the state interferes with the interactionbetween two third parties (e.g., price controls or product regu-lations) Are people better off when the state takes their moneyagainst their will? Are people better off when the state spendstheir money on something that they would not have purchased

on their own? Are private parties better off when they are vented from engaging in exchange that they consider mutuallybeneficial? Hint: The correct answer is no! Read Chapters 3, 4,and 5 to see Rothbard’s discussion

pre-Throughout the volume, Rothbard describes how ment is not a benign force as many government supportersassume The government is an institution of coercion thatinterferes with voluntary relations in the market Just in caseanyone cannot wait to find out how far Rothbard will push the

govern-1970 See Joseph Stromberg, “Introduction to Man, Economy, and State

with Power and Market” in Murray N Rothbard Man, Economy, and State with Power and Market, Scholar’s edition (Auburn, Ala.: Mises Institute,

2004), pp lxv–lxxi.

2 Rothbard, p 251.

3 The public choice economists’ views on government and anarchy are

presented in Edward Stringham, ed., Anarchy, State, and Public Choice

(Cheltenham, U.K.: Edward Elgar, 2006).

logic, Rothbard begins Chapter 1 with nothing less than a

dis-cussion of why government is unnecessary! Power and Market is

noteworthy because it “is the first analysis of the economics ofgovernment to argue that no provision of goods or servicesrequires the existence of government.”4Before Rothbard, eventhe most free-market theorists such as Ludwig von Mises,Henry Hazlitt, Ayn Rand, and Friedrich Hayek had simplyassumed that services like law enforcement must be providedcollectively by the state Rothbard believes that law enforce-ment must be analyzed in terms of marginal units and, likeother goods, those marginal units can be provided privately Hebriefly mentions some historical examples of private lawenforcement and then speculates how a purely private systemcould work Is he being too Utopian? Rothbard responds:

[T]his concept is far more workable than the truly

Utopian idea of a strictly limited government, an idea

that has never worked historically And

understand-ably so, for the State’s built-in monopoly of

aggres-sion and inherent absence of free-market checks has

enabled it to burst easy any bonds that well-meaning

people have tried to place on it 5

Rothbard’s libertarian anarchism influenced many subsequentthinkers, who have since written numerous articles and books

on why government is unnecessary.6

4Murray Rothbard, Power and Market (Kansas City: Sheed Andrews

and McMeel, 1970), p vi.

5 Rothbard, p 9.

6See for example: Randy Barnett, The Structure of Liberty: Justice and

the Rule of Law (Oxford: Clarendon Press, 1998); Bruce Benson, The Enterprise of Law: Justice Without the State (San Francisco: Pacific

Research Institute for Public Policy, 1990); idem, To Serve and Protect:

Privatization and Community in Criminal Justice (New York: New York

University Press, 1998); Hans-Hermann Hoppe, Theory of Socialism and

Capitalism (Boston: Kluwer, 1989); idem, Democracy—The God That

In addition to breaking new ground in its time, the book isextremely relevant to political economy today For example,

Power and Market’s final chapter is a hard-hitting critique of

antimarket ethics, which have been retained or are gaining ularity in modern times Take the view of many modern behav-ioral economists who argue that society should not rely on freemarkets because people do not always know what is best forthem.7Rothbard agrees that people often make mistakes, but hedisagrees about whether that justifies paternalism If people donot know what’s best for them, how can they be suited to electleaders who do?8Or take the popular view of many public choiceeconomists who argue in favor of government law enforcementbecause human nature is imperfect Rothbard agrees that menare not angels, but that does not justify government for him.9Ifhumans are so bad, how can we expect a coercive government

pop-Failed: The Economic and Politics of Monarchy, Democracy, and Natural Order

(New Brunswick, N.J.: Transaction Publishers, 2001); idem, ed., The

Myth of National Defense: Essays on the Theory and History of Security duction (Auburn, Ala.: Mises Institute, 2003); Anthony de Jasay, Against Politics: On Government, Anarchy, and Order (London: Routledge, 1997);

Pro-Edward Stringham, ed., Anarchy, State, and Public Choice (Cheltenham, U.K.: Edward Elgar Publishing, 2006); and idem, ed., Anarchy and the

Law: The Political Economy of Choice (New Brunswick, N.J.: Transaction

Publishers, 2006).

7 Richard H Thaler and Cass R Sunstein, “Libertarian Paternalism,”

American Economic Review 93, no 2 (May 2003): 175–79.

8 Rothbard, p 254.

9 See Martin C McGuire and Mancur Olson, “The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force,”

Journal of Economic Literature 34, no 1 (March 1996): 72–96, and the

arguments by the public choice economists in Edward Stringham, ed.,

Anarchy, State, and Public Choice (Cheltenham, U.K.: Edward Elgar

Pub-lishing, 2006).

composed of humans to make the situation better?10 Rothbardtakes on these arguments and many more.11

In Power and Market, no aspect of government intervention is

spared Rothbard’s arguments should give pause to anyone whowants to solve problems using political means To Rothbard, thestate is not perfect, desirable, or necessary; it’s quite the opposite!The state, in all of its forms, is injurious to civil society, and if wetruly want to improve the world, we must look beyond govern-ment Real solutions lie not in power but in the market

Government?” Journal of Libertarian Studies 17 (Fall, 2003): 17–38.

11 Rothbard’s coverage of many topics prevents him from delving into any one in too much detail This breadth of topics is part of the appeal of the book, however From this perspective, Rothard’s work can be seen as

a potential springboard for modern libertarian scholarship on many ics Rothbard wrote, “The discussion throughout the book is largely the- oretical No attempt has been made to enumerate the institutional exam- ples of government intervention in the world today, an attempt that

top-would, of course, require all too many volumes” (Power and Market

[1970], p vii) The good news is that Rothbard’s initial pass provides today’s libertarian scholars an opportunity to illustrate or extend the the-

oretical ideas in Power and Market For example, many of my articles on

private rule enforcement attempt to do just that: Edward Stringham,

“Market Chosen Law,” Journal of Libertarian Studies 14, no 1 (Winter,

1998–1999): 53–77; idem, “The Emergence of the London Stock

Exchange as a Self-Policing Club,” Journal of Private Enterprise 17, no 2

(2002): 1–19; idem, “The Extralegal Development of Securities Trading

in Seventeenth Century Amsterdam,” Quarterly Review of Economics and

Finance 43, no 2 (Summer, 2003): 321–44; Bryan Caplan and Edward

Stringham, “Networks, Law, and the Paradox of Cooperation,” Review of

Austrian Economics 16, no 4 (December 2003): 309–26; idem,

“Overlap-ping Jurisdictions, Proprietary Communities, and Competition in the

Realm of Law,” Journal of Institutional and Theoretical Economics,

forth-coming

ECONOMISTS HAVE REFERRED INNUMERABLE TIMESto the “freemarket,” the social array of voluntary exchanges of goods andservices But despite this abundance of treatment, their analysishas slighted the deeper implications of free exchange Thus,there has been general neglect of the fact that free exchange

means exchange of titles of ownership to property, and that,

therefore, the economist is obliged to inquire into the tions and the nature of the property ownership that wouldobtain in the free society If a free society means a world inwhich no one aggresses against the person or property of oth-ers, then this implies a society in which every man has theabsolute right of property in his own self and in the previouslyunowned natural resources that he finds, transforms by his ownlabor, and then gives to or exchanges with others.1A firm prop-erty right in one’s own self and in the resources that one finds,transforms, and gives or exchanges, leads to the property struc-ture that is found in free-market capitalism Thus, an economistcannot fully analyze the exchange structure of the free marketwithout setting forth the theory of property rights, of justice inproperty, that would have to obtain in a free-market society

condi-1Murray N Rothbard, Man, Economy, and State (Princeton, N.J.: D.

Van Nostrand, 1962; reprints of this edition 1970, 1993, and 2001) and

Man, Economy, and State with Power and Market, Scholar’s edition

(Auburn, Ala.: Ludwig von Mises Institute, 2004).

1

D EFENSE S ERVICES

In our analysis of the free market in Man, Economy, and

State, we assumed that no invasion of property takes place there,

either because everyone voluntarily refrains from such sion or because whatever method of forcible defense exists onthe free market is sufficient to prevent any such aggression Buteconomists have almost invariably and paradoxically assumedthat the market must be kept free by the use of invasive andunfree actions—in short, by governmental institutions outsidethe market nexus

aggres-A supply of defense services on the free market would meanmaintaining the axiom of the free society, namely, that there be

no use of physical force except in defense against those using force

to invade person or property This would imply the completeabsence of a State apparatus or government; for the State, unlikeall other persons and institutions in society, acquires its revenue,not by exchanges freely contracted, but by a system of unilateralcoercion called “taxation.” Defense in the free society (includingsuch defense services to person and property as police protectionand judicial findings) would therefore have to be supplied by

people or firms who (a) gained their revenue voluntarily rather than by coercion and (b) did not—as the State does—arrogate to

themselves a compulsory monopoly of police or judicial tion Only such libertarian provision of defense service would beconsonant with a free market and a free society Thus, defensefirms would have to be as freely competitive and as noncoerciveagainst noninvaders as are all other suppliers of goods and serv-ices on the free market Defense services, like all other services,would be marketable and marketable only

protec-Those economists and others who espouse the philosophy of

laissez faire believe that the freedom of the market should be

upheld and that property rights must not be invaded

Neverthe-less, they strongly believe that defense service cannot be supplied

by the market and that defense against invasion of property musttherefore be supplied outside the free market, by the coerciveforce of the government In arguing thus, they are caught in an

insoluble contradiction, for they sanction and advocate massiveinvasion of property by the very agency (government) that is

supposed to defend people against invasion! For a laissez-faire

government would necessarily have to seize its revenues by theinvasion of property called taxation and would arrogate to itself

a compulsory monopoly of defense services over some

arbitrar-ily designated territorial area The laissez-faire theorists (who are

here joined by almost all other writers) attempt to redeem theirposition from this glaring contradiction by asserting that a

purely free-market defense service could not exist and that

there-fore those who value highly a forcible defense against violencewould have to fall back on the State (despite its black historical

record as the great engine of invasive violence) as a necessary evil

for the protection of person and property

The laissez-faireists offer several objections to the idea of

free-market defense One objection holds that, since a free ket of exchanges presupposes a system of property rights, there-fore the State is needed to define and allocate the structure ofsuch rights But we have seen that the principles of a free soci-

mar-ety do imply a very definite theory of property rights, namely,

self-ownership and the ownership of natural resources foundand transformed by one’s labor Therefore, no State or similaragency contrary to the market is needed to define or allocateproperty rights This can and will be done by the use of reasonand through market processes themselves; any other allocation

or definition would be completely arbitrary and contrary to theprinciples of the free society

A similar doctrine holds that defense must be supplied bythe State because of the unique status of defense as a necessaryprecondition of market activity, as a function without which a

market economy could not exist Yet this argument is a non

sequitur that proves far too much It was the fallacy of the

clas-sical economists to consider goods and services in terms of large

classes; instead, modern economics demonstrates that services

must be considered in terms of marginal units For all actions on

the market are marginal If we begin to treat whole classesinstead of marginal units, we can discover a great myriad of nec-essary, indispensable goods and services all of which might beconsidered as “preconditions” of market activity Is not landroom vital, or food for each participant, or clothing, or shelter?Can a market long exist without them? And what of paper,which has become a basic requisite of market activity in thecomplex modern economy? Must all these goods and servicestherefore be supplied by the State and the State only?

The laissez-faireist also assumes that there must be a single

compulsory monopoly of coercion and decision-making in ety, that there must, for example, be one Supreme Court tohand down final and unquestioned decisions But he fails to rec-ognize that the world has lived quite well throughout its exis-tence without a single, ultimate decision-maker over its wholeinhabited surface The Argentinian, for example, lives in a state

soci-of “anarchy,” soci-of nongovernment, in relation to the citizen soci-ofUruguay—or of Ceylon And yet the private citizens of theseand other countries live and trade together without getting intoinsoluble legal conflicts, despite the absence of a common gov-ernmental ruler The Argentinian who believes he has beenaggressed upon by a Ceylonese, for example, takes his grievance

to an Argentinian court, and its decision is recognized by theCeylonese courts—and vice versa if the Ceylonese is theaggrieved party Although it is true that the separate nation-States have warred interminably against each other, the privatecitizens of the various countries, despite widely differing legalsystems, have managed to live together in harmony withouthaving a single government over them If the citizens of north-ern Montana and of Saskatchewan across the border can liveand trade together in harmony without a common government,

so can the citizens of northern and of southern Montana Inshort, the present-day boundaries of nations are purely histori-cal and arbitrary, and there is no more need for a monopolygovernment over the citizens of one country than there is forone between the citizens of two different nations

It is all the more curious, incidentally, that while

laissez-faireists should by the logic of their position, be ardent believers

in a single, unified world government, so that no one will live in

a state of “anarchy” in relation to anyone else, they almost neverare And once one concedes that a single world government is

not necessary, then where does one logically stop at the

permis-sibility of separate states? If Canada and the United States can

be separate nations without being denounced as being in a state

of impermissible “anarchy,” why may not the South secede fromthe United States? New York State from the Union? New YorkCity from the state? Why may not Manhattan secede? Each

neighborhood? Each block? Each house? Each person? But, of

course, if each person may secede from government, we havevirtually arrived at the purely free society, where defense is sup-plied along with all other services by the free market and wherethe invasive State has ceased to exist

The role of freely competitive judiciaries has, in fact, beenfar more important in the history of the West than is often rec-ognized The law merchant, admiralty law, and much of thecommon law began to be developed by privately competitivejudges, who were sought out by litigants for their expertise inunderstanding the legal areas involved.2 The fairs of Cham-pagne and the great marts of international trade in the MiddleAges enjoyed freely competitive courts, and people couldpatronize those that they deemed most accurate and efficient.Let us, then, examine in a little more detail what a free-mar-ket defense system might look like It is, we must realize, impos-sible to blueprint the exact institutional conditions of any mar-ket in advance, just as it would have been impossible 50 yearsago to predict the exact structure of the television industrytoday However, we can postulate some of the workings of afreely competitive, marketable system of police and judicial

2See Bruno Leoni, Freedom and the Law (Princeton, N.J.: D Van

Nos-trand, 1961) See also Murray N Rothbard, “On Freedom and the Law,”

New Individualist Review, Winter, 1962, pp 37–40.

services Most likely, such services would be sold on an advancesubscription basis, with premiums paid regularly and services to

be supplied on call Many competitors would undoubtedly arise,each attempting, by earning a reputation for efficiency and pro-bity, to win a consumer market for its services Of course, it ispossible that in some areas a single agency would outcompete allothers, but this does not seem likely when we realize that there

is no territorial monopoly and that efficient firms would be able

to open branches in other geographical areas It seems likely,also, that supplies of police and judicial service would be pro-vided by insurance companies, because it would be to their directadvantage to reduce the amount of crime as much as possible.One common objection to the feasibility of marketable pro-

tection (its desirability is not the problem here) runs as follows:

Suppose that Jones subscribes to Defense Agency X and Smithsubscribes to Defense Agency Y (We will assume for conven-ience that the defense agency includes a police force and a court

or courts, although in practice these two functions might well

be performed by separate firms.) Smith alleges that he has beenassaulted, or robbed, by Jones; Jones denies the charge How,then, is justice to be dispensed?

Clearly, Smith will file charges against Jones and institute suit

or trial proceedings in the Y court system Jones is invited todefend himself against the charges, although there can be no sub-poena power, since any sort of force used against a man not yetconvicted of a crime is itself an invasive and criminal act thatcould not be consonant with the free society we have been pos-tulating If Jones is declared innocent, or if he is declared guiltyand consents to the finding, then there if no problem on thislevel, and the Y courts then institute suitable measures of punish-ment.3But what if Jones challenges the finding? In that case, hecan either take the case to his X court system, or take it directly

3 Suppose that Smith, convinced of Jones’ guilt, “takes the law into his own hands” rather than go through the court procedure? What then? In

to a privately competitive Appeals Court of a type that willundoubtedly spring up in abundance on the market to fill thegreat need for such tribunals Probably there will be just a fewAppeals Court systems, far fewer than the number of primarycourts, and each of the lower courts will boast to its customersabout being members of those Appeals Court systems noted fortheir efficiency and probity The Appeals Court decision can then

be taken by the society as binding Indeed, in the basic legal code

of the free society, there probably would be enshrined some suchclause as that the decision of any two courts will be consideredbinding, i.e., will be the point at which the court will be able totake action against the party adjudged guilty.4

Every legal system needs some sort of socially-agreed-upon

cutoff point, a point at which judicial procedure stops and ishment against the convicted criminal begins But a singlemonopoly court of ultimate decision-making need not beimposed and of course cannot be in a free society; and a liber-tarian legal code might well have a two-court cutoff point, sincethere are always two contesting parties, the plaintiff and thedefendant

pun-itself this would be legitimate and not punishable as a crime, since no court or agency may have the right, in a free society, to use force for defense beyond the selfsame right of each individual However, Smith would then have to face the consequence of a possible countersuit and trial by Jones, and he himself would have to face punishment as a crimi- nal if Jones is found to be innocent.

4 The Law Code of the purely free society would simply enshrine the libertarian axiom: prohibition of any violence against the person or prop- erty of another (except in defense of someone’s person or property), prop- erty to be defined as self-ownership plus the ownership of resources that one has found, transformed, or bought or received after such transfor- mation The task of the Code would be to spell out the implications of this axiom (e.g., the libertarian sections of the law merchant or common law would be co-opted, while the statist accretions would be discarded) The Code would then be applied to specific cases by the free-market judges, who would all pledge themselves to follow it.

Another common objection to the workability of ket defense wonders: May not one or more of the defense agen-cies turn its coercive power to criminal uses? In short, may not

free-mar-a privfree-mar-ate police free-mar-agency use its force to free-mar-aggress free-mar-agfree-mar-ainst others, ormay not a private court collude to make fraudulent decisionsand thus aggress against its subscribers and victims? It is verygenerally assumed that those who postulate a stateless societyare also naive enough to believe that, in such a society, all menwould be “good,” and no one would wish to aggress against hisneighbor There is no need to assume any such magical ormiraculous change in human nature Of course, some of the pri-vate defense agencies will become criminal, just as some peoplebecome criminal now But the point is that in a stateless society

there would be no regular, legalized channel for crime and

aggression, no government apparatus the control of which vides a secure monopoly for invasion of person and property.When a State exists, there does exist such a built-in channel,namely, the coercive taxation power, and the compulsorymonopoly of forcible protection In the purely free-marketsociety, a would-be criminal police or judiciary would find itvery difficult to take power, since there would be no organizedState apparatus to seize and use as the instrumentality of com-

pro-mand To create such an instrumentality de novo is very difficult,

and, indeed, almost impossible; historically, it took State rulerscenturies to establish a functioning State apparatus Further-more, the purely free-market, stateless society would containwithin itself a system of built-in “checks and balances” thatwould make it almost impossible for such organized crime tosucceed There has been much talk about “checks and balances”

in the American system, but these can scarcely be consideredchecks at all, since every one of these institutions is an agency

of the central government and eventually of the ruling party ofthat government The checks and balances in the stateless soci-

ety consist precisely in the free market, i.e., the existence of

freely competitive police and judicial agencies that couldquickly be mobilized to put down any outlaw agency

It is true that there can be no absolute guarantee that apurely market society would not fall prey to organized crimi-

nality But this concept is far more workable than the truly

Utopian idea of a strictly limited government, an idea that hasnever worked historically And understandably so, for the State’sbuilt-in monopoly of aggression and inherent absence of free-market checks has enabled it to burst easily any bonds that well-meaning people have tried to place upon it Finally, the worstthat could possibly happen would be for the State to be reestab-

lished And since the State is what we have now, any

experimen-tation with a stateless society would have nothing to lose andeverything to gain

Many economists object to marketable defense on thegrounds that defense is one of an alleged category of “collectivegoods” that can be supplied only by the State This fallacioustheory is refuted elsewhere.5 And two of the very few econo-mists who have conceded the possibility of a purely marketdefense have written:

If, then, individuals were willing to pay sufficiently

high price, protection, general education, recreation,

the army, navy, police departments, schools and parks

might be provided through individual initiative, as

well as food, clothing and automobiles 6

Actually, Hunter and Allen greatly underestimated the bility of private action in providing these services, for a com-pulsory monopoly, gaining its revenues out of generalized coer-cion rather than by the voluntary payment of the customers, isbound to be strikingly less efficient than a freely competitive,private enterprise supply of such services The “price” paidwould be a great gain to society and to the consumers ratherthan an imposed extra cost

worka-5Man, Economy, and State (1962, pp 883–86; 2004, pp 1029–36).

6Merlin H Hunter and Harry K Allen, Principles of Public Finance

(New York: Harper & Bros., 1940), p 22.

Thus, a truly free market is totally incompatible with theexistence of a State, an institution that presumes to “defend”person and property by itself subsisting on the unilateral coer-cion against private property known as taxation On the freemarket, defense against violence would be a service like anyother, obtainable from freely competitive private organizations.Whatever problems remain in this area could easily be solved inpractice by the market process, that very process which hassolved countless organizational problems of far greater intri-

cacy Those laissez-faire economists and writers, past and

pres-ent, who have stopped short at the impossibly Utopian ideal of

a “limited” government are trapped in a grave inner

contradic-tion This contradiction of laissez faire was lucidly exposed by

the British political philosopher, Auberon Herbert:

A is to compel B to co-operate with him, or B to

com-pel A; but in any case co-operation cannot be secured,

as we are told, unless, through all time, one section is

compelling another section to form a State Very

good; but then what has become of our system of

Individualism? A has got hold of B, or B of A, and has

forced him into a system of which he disapproves,

extracts service and payment from him which he does

not wish to render, has virtually become his master—

what is all this but Socialism on a reduced scale?

Believing, then, that the judgment of every individual

who has not aggressed against his neighbour is

supreme as regards his actions, and that this is the

rock on which Individualism rests—I deny that A and

B can go to C and force him to form a State and

extract from him certain payments and services in the

name of such State; and I go on to maintain that if

you act in this manner, you at once justify

State-Socialism 7

7Auberon Herbert and J.H Levy, Taxation and Anarchism (London:

The Personal Rights Association, 1912), pp 2–3.

1 Types of Intervention

WE HAVE SO FAR CONTEMPLATEDa free society and a free ket, where any needed defense against violent invasion of per-son and property is supplied, not by the State, but by freelycompetitive, marketable defense agencies Our major task inthis volume is to analyze the effects of various types of violentintervention in society and, especially, in the market Most ofour examples will deal with the State, since the State is uniquelythe agency engaged in regularized violence on a large scale.However, our analysis applies to the extent that any individual

mar-or group commits violent invasion Whether the invasion is

“legal” or not does not concern us, since we are engaged inpraxeological, not legal, analysis

One of the most lucid analyses of the distinction betweenState and market was set forth by Franz Oppenheimer Hepointed out that there are fundamentally two ways of satisfying

a person’s wants: (1) by production and voluntary exchange withothers on the market and (2) by violent expropriation of thewealth of others.1 The first method Oppenheimer termed “theeconomic means” for the satisfaction of wants; the second

1 A person may receive gifts, but this is a unitary act of the giver, not involving an act of the receiver himself.

11

method, “the political means.” The State is trenchantly defined

as the “organization of the political means.”2

A generic term is needed to designate an individual or group

that commits invasive violence in society We may call

inter-vener, or invader, one who intervenes violently in free social or

market relations The term applies to any individual or groupthat initiates violent intervention in the free actions of personsand property owners

What types of intervention can the invader commit?Broadly, we may distinguish three categories In the first place,the intervener may command an individual subject to do or not

to do certain things when these actions directly involve the

indi-vidual’s person or property alone In short, he restricts the

sub-ject’s use of his property when exchange is not involved This

may be called an autistic intervention, for any specific command

directly involves only the subject himself Secondly, the

inter-vener may enforce a coerced exchange between the individual

subject and himself, or a coerced “gift” to himself from the ject Thirdly, the invader may either compel or prohibit an

sub-exchange between a pair of subjects The former may be called

2See Franz Oppenheimer, The State (New York: Vanguard Press,

1914):

There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the nec- essary means for satisfying his desires These are work and robbery, one’s own labor and the forcible appropriation of the labor of others I propose to call one’s own labor and the equivalent exchange of one’s own labor for the labor of others “the economic means” for the satisfac- tion of needs, while the unrequited appropriation of the labor of others will be called the “political means The state is an organization of the political means (pp 24–27)

See also Albert Jay Nock, Our Enemy, the State (Caldwell, Idaho: Caxton

Printers, 1946), pp 59–62; Frank Chodorov, The Economics of Society,

Gov-ernment, and the State (mimeographed MS., New York, 1946), pp 64 ff.

On the State as engaging in permanent conquest, see ibid., pp 13–16,

111–17, 136–40.

a binary intervention, since a hegemonic relation is established

between two people (the intervener and the subject); the latter

may be called a triangular intervention, since a hegemonic tion is created between the invader and a pair of exchangers or

rela-would-be exchangers The market, complex though it may be,consists of a series of exchanges between pairs of individuals.However extensive the interventions, then, they may beresolved into unit impacts on either individual subjects or pairs

of individual subjects

All these types of intervention, of course, are subdivisions of

the hegemonic relation—the relation of command and

obedi-ence—as contrasted with the contractual relation of voluntarymutual benefit

Autistic intervention occurs when the invader coerces a ject without receiving any good or service in return Widely dis-parate types of autistic intervention are: homicide, assault, andcompulsory enforcement or prohibition of any salute, speech,

sub-or religious observance Even if the intervener is the State,which issues the edict to all individuals in the society, the edict

is still in itself an autistic intervention, since the lines of force, so

to speak, radiate from the State to each individual alone Binaryintervention occurs when the invader forces the subject to make

an exchange or a unilateral “gift” of some good or service to theinvader Highway robbery and taxes are examples of binaryintervention, as are conscription and compulsory jury service.Whether the binary hegemonic relation is a coerced “gift” or acoerced exchange does not really matter a great deal The onlydifference is in the type of coercion involved Slavery, of course,

is usually a coerced exchange, since the slaveowner must supply

his slaves with subsistence

Curiously enough, writers on political economy have nized only the third category as intervention.3It is understandable

recog-3This is to be inferred from, rather than discovered in explicit form in,

their writings As far as we know, no one has systematically categorized or analyzed types of intervention.

that preoccupation with catallactic problems has led economists

to overlook the broader praxeological category of actions thatlie outside the monetary exchange nexus Nevertheless, they arepart of the subject matter of praxeology—and should be sub-jected to analysis There is far less excuse for economists to neg-

lect the binary category of intervention Yet many economists

who profess to be champions of the “free market” and nents of interference with it have a peculiarly narrow view offreedom and intervention Acts of binary intervention, such asconscription and the imposition of income taxes, are not con-sidered intervention at all nor as interferences with the freemarket Only instances of triangular intervention, such as pricecontrol, are conceded to be intervention Curious schemata aredeveloped in which the market is considered absolutely “free”and unhampered despite a regular system of imposed taxation.Yet taxes (and conscripts) are paid in money and thus enter thecatallactic, as well as the wider praxeological, nexus.4

oppo-In tracing the effects of intervention, one must take care toanalyze all its consequences, direct and indirect It is impossible

in the space of this volume to trace all the effects of every one ofthe almost infinite number of possible varieties of intervention,but sufficient analysis can be made of the important categories ofintervention and the consequences of each Thus, it must beremembered that acts of binary intervention have definite trian-gular repercussions: an income tax will shift the pattern ofexchanges between subjects from what it otherwise would havebeen Furthermore, all the consequences of an act must be con-sidered; it is not sufficient to engage in a “partial-equilibrium”

4 A narrow view of “freedom” is characteristic in the present day In the political lexicon of modern America, “left-wingers” often advocate freedom in the sense of opposition to autistic intervention, but look benignly on triangular intervention “Right-wingers,” on the other hand, severely oppose triangular intervention, but tend to favor, or remain indifferent to, autistic intervention Both groups are ambivalent toward binary intervention.

analysis of taxation, for example, and to consider a tax pletely apart from the fact that the State subsequently spends thetax money.

com-2 Direct Effects of Intervention on Utility

A INTERVENTION ANDCONFLICT

The first step in analyzing intervention is to contrast the

direct effect on the utilities of the participants, with the effect of

a free society When people are free to act, they will always act

in a way that they believe will maximize their utility, i.e., willraise them to the highest possible position on their value scale

Their utility ex ante will be maximized, provided we take care to

interpret “utility” in an ordinal rather than a cardinal manner.Any action, any exchange that takes place on the free market ormore broadly in the free society, occurs because of the expectedbenefit to each party concerned If we allow ourselves to use the

term “society” to depict the pattern of all individual exchanges,

then we may say that the free market “maximizes” social utility,since everyone gains in utility We must be careful, however, not

to hypostatize “society” into a real entity that means somethingelse than an array of all individuals

Coercive intervention, on the other hand, signifies per se

that the individual or individuals coerced would not have donewhat they are now doing were it not for the intervention Theindividual who is coerced into saying or not saying something

or into making or not making an exchange with the intervener

or with someone else is having his actions changed by a threat

of violence The coerced individual loses in utility as a result ofthe intervention, for his action has been changed by its impact.Any intervention, whether it be autistic, binary, or triangular,causes the subjects to lose in utility In autistic and binary inter-vention, each individual loses in utility; in triangular interven-tion, at least one, and sometimes both, of the pair of would-beexchangers lose in utility

Who, in contrast, gains in utility ex ante? Clearly, the

inter-vener; otherwise he would not have intervened Either he gains

in exchangeable goods at the expense of his subject, as in binaryintervention, or, as in autistic and triangular intervention, hegains in a sense of well-being from enforcing regulations uponothers

All instances of intervention, then, in contrast to the free

market, are cases in which one set of men gains at the expense of

other men In binary intervention, the gains and losses are gible” in the form of exchangeable goods and services; in othertypes of intervention, the gains are nonexchangeable satisfac-tions, and the loss consists in being coerced into less satisfyingtypes of activity (if not positively painful ones)

“tan-Before the development of economic science, peoplethought of exchange and the market as always benefiting oneparty at the expense of the other This was the root of the mer-cantilist view of the market Economics has shown that this is a

fallacy, for on the market both parties to any exchange benefit.

On the market, therefore, there can be no such thing as

exploita-tion But the thesis of a conflict of interest is true whenever the

State or any other agency intervenes on the market For then theintervener gains only at the expense of subjects who lose in util-ity On the market all is harmony But as soon as interventionappears and is established, conflict is created, for each may par-ticipate in a scramble to be a net gainer rather than a net loser—

to be part of the invading team, instead of one of the victims

It has become fashionable to assert that “Conservatives” likeJohn C Calhoun “anticipated” the Marxian doctrine of classexploitation But the Marxian doctrine holds, erroneously, thatthere are “classes” on the free market whose interests clash andconflict Calhoun’s insight was almost the reverse Calhoun saw

that it was the intervention of the State that in itself created the

“classes” and the conflict.5 He particularly perceived this in the

5 “Castes” would be a better term than “classes” here Classes are any collection of units with a certain property in common There is no reason

case of the binary intervention of taxes For he saw that the

pro-ceeds of taxes are used and spent, and that some people in thecommunity must be net payers of tax funds, while the others arenet recipients Calhoun defined the latter as the “ruling class” ofthe exploiters, and the former as the “ruled” or exploited, andthe distinction is quite a cogent one Calhoun set forth hisanalysis brilliantly:

Few, comparatively, as they are, the agents and

employees of the government constitute that portion

of the community who are the exclusive recipients of

the proceeds of the taxes Whatever amount is taken

from the community in the form of taxes, if not lost,

goes to them in the shape of expenditures or

dis-bursements The two—disbursement and taxation—

constitute the fiscal action of the government They

are correlatives What the one takes from the

com-munity under the name of taxes is transferred to the

portion of the community who are the recipients

under that of disbursements But as the recipients

constitute only a portion of the community, it

fol-lows, taking the two parts of the fiscal process

together, that its action must be unequal between the

payers of the taxes and the recipients of their

pro-ceeds Nor can it be otherwise; unless what is

col-lected from each individual in the shape of taxes shall

be returned to him in that of disbursements, which

would make the process nugatory and absurd .

Such being the case, it must necessarily follow that

some one portion of the community must pay in taxes

more than it receives back in disbursements, while

another receives in disbursements more than it pays

for them to conflict Does the class of men named Jones necessarily

con-flict with the class of men named Smith? On the other hand, castes are

State-made groups, each with its own set of violence-established privileges and tasks Castes necessarily conflict because some are instituted to rule over the others.

in taxes It is, then, manifest, taking the whole process

together, that taxes must be, in effect, bounties to that

portion of the community which receives more in

disbursements than it pays in taxes, while to the other

which pays in taxes more than it receives in

disburse-ments they are taxes in reality—burdens instead of

bounties This consequence is unavoidable It results

from the nature of the process, be the taxes ever so

equally laid .

The necessary result, then, of the unequal fiscal

action of the government is to divide the community

into two great classes: one consisting of those who, in

reality, pay the taxes and, of course, bear exclusively

the burden of supporting the government; and the

other, of those who are the recipients of their

pro-ceeds through disbursements, and who are, in fact,

supported by the government; or, in fewer words, to

divide it into tax-payers and tax-consumers.

But the effect of this is to place them in antagonistic

relations in reference to the fiscal action of the

gov-ernment and the entire course of policy therewith

connected For the greater the taxes and

disburse-ments, the greater the gain of the one and the loss of

the other, and vice versa 6

“Ruling” and “ruled” apply also to the forms of governmentintervention, but Calhoun was quite right in focusing on taxesand fiscal policy as the keystone, for it is taxes that supply theresources and payment for the State in performing its myriadother acts of intervention

All State intervention rests on the binary intervention oftaxes at its base; even if the State intervened nowhere else, itstaxation would remain Since the term “social” can be applied

6John C Calhoun, A Disquisition on Government (New York: Liberal

Arts Press, 1953), pp 16–18 Calhoun, however, did not understand the harmony of interests on the free market.

only to every single individual concerned, it is clear that, whilethe free market maximizes social utility, no act of the State canever increase social utility Indeed, the picture of the free mar-ket is necessarily one of harmony and mutual benefit; the pic-ture of State intervention is one of caste conflict, coercion, andexploitation.

B DEMOCRACY AND THEVOLUNTARY

It might be objected that all these forms of intervention arereally not coercive but “voluntary,” for in a democracy they aresupported by the majority of the people But this support is usu-ally passive, resigned, and apathetic, rather than eager—whether the State is a democracy or not.7

In a democracy, the nonvoters can hardly be said to supportthe rulers, and neither can the voters for the losing side Buteven those who voted for the winners may well have votedmerely for the “lesser of the two evils.” The interesting ques-

tion is: Why do they have to vote for any evil at all? Such terms

are never used by people when they act freely for themselves, orwhen they purchase goods on the free market No one thinks ofhis new suit or refrigerator as an “evil”—lesser or greater Insuch cases, people think of themselves as buying positive

“goods,” not as resignedly supporting a lesser bad The point isthat the public never has the opportunity of voting on the State

7 As Professor Lindsay Rogers has trenchantly written on the subject

of public opinion:

Before Great Britain adopted conscription in 1939, only thirty-nine percent of the voters were for it; a week after the conscription bill became law, a poll showed that fifty- eight percent approved Many polls in the United States have shown a similar inflation of support for a policy as soon as it is translated to the statute books or into a Pres- idential order (Lindsay Rogers, “ ‘The Mind of America’

to the Fourth Decimal Place,” The Reporter, June 30,

1955, p 44)

system itself; they are caught up in a system in which coercionover them is inevitable.8

Be that as it may, as we have said, all States are supported by

a majority—whether a voting democracy or not; otherwise, theycould not long continue to wield force against the determinedresistance of the majority However, the support may simplyreflect apathy—perhaps from the resigned belief that the State

is a permanent if unwelcome fixture of nature Witness themotto: “Nothing is as permanent as death and taxes.”

Setting all these matters aside, however, and even grantingthat a State might be enthusiastically supported by a majority,

we still do not establish its voluntary nature For the majority isnot society, is not everyone Majority coercion over the minor-ity is still coercion

Since States exist, and they are accepted for generations andcenturies, we must conclude that a majority are at least passivesupporters of all States—for no minority can for long rule an

actively hostile majority In a certain sense, therefore, all

tyranny is majority tyranny, regardless of the formalities of thegovernment structure.9, 10But this does not change our analytic

8This coercion would exist even in the most direct democracies It is doubly compounded in representative republics, where the people never

have a chance of voting on issues, but only on the men who rule them They can only reject men—and this at very long intervals—and if the candidates have the same views on issues, the public cannot effect any sort

of fundamental change.

9 It is often stated that under “modern” conditions of destructive

weapons, etc., a minority can tyrannize permanently over a majority But

this ignores the fact that these weapons can be held by the majority, or that agents of the minority can mutiny The sheer absurdity, for example,

of the current belief that a few million could really tyrannize over a few

hundred million active resistants is not often realized As David Hume

profoundly stated:

Nothing appears more surprising than the easiness with which the many are governed by the few and the implicit submission with which men resign their own

conclusion of conflict and coercion as a corollary of the State.The conflict and coercion exist no matter how many peoplecoerce how many others.11

C UTILITY ANDRESISTANCE TOINVASION

To our comparative “welfare-economic” analysis of the freemarket and the State, it might be objected that when defenseagencies restrain an invader from attacking someone’s property,

they are benefiting the property owner at the expense of a loss of

utility by the would-be invader Since defense agencies enforce

rights on the free market, does not the free market also involve

a gain by some at the expense of the utility of others (even ifthese others are invaders)?

In answer, we may state first that the free market is a society

in which all exchange voluntarily It may most easily be ceived as a situation in which no one aggresses against person orproperty In that case, it is obvious that the utility of all is maxi-mized on the free market Defense agencies become necessaryonly as a defense against invasions of that market It is the

con-invader, not the existence of the defense agency, that inflicts

sentiments and passions to those of their rulers When we enquire by what means this wonder is effected, we shall find that because Force is always on the side of the gov- erned, the governors have nothing to support them but opinion It is, therefore, on opinion that government is founded; and this maxim extends to the most despotic and

most military governments (David Hume, Essays,

Liter-ary, Moral and Political [London, n.d.], p 23)

See also Etienne de La Boétie, Anti-Dictator (New York: Columbia

Uni-versity Press, 1942), pp 8–9 For an analysis of the types of opinion

fos-tered by the State in order to obtain public support, see Bertrand de venel, On Power (New York: Viking Press, 1949).

Jou-10 This analysis of majority support applies to any intervention of rather long standing, carried on frankly and openly, whether or not the groups are labeled “States.”

11See Calhoun, Disquisition on Government, pp 14, 18–19, 23–33.

losses on his fellowmen A defense agency existing without aninvader would simply be a voluntarily established insurance

against attack The existence of a defense agency does not

vio-late the principle of maximum utility, and it still reflects mutualbenefit to all concerned Conflict enters only with the invader.The invader, let us say, is in the process of committing anaggressive act against Smith, thereby injuring Smith for hisgain The defense agency, rushing to the aid of Smith, of course,injures the invader’s utility; but it does so only to counteract theinjury to Smith It does help to maximize the utility of the non-

criminals The principle of conflict and loss of utility was duced, not by the existence of the defense agency, but by the

intro-existence of the invader It is still true, therefore, that utility ismaximized for all on the free market; whereas to the extent thatthere is invasive interference in society, it is infected with con-flict and exploitation of man by man

D THEARGUMENT FROMENVY

Another objection holds that the free market does not reallyincrease the utility of all individuals, because some may be sosmitten with envy at the success of others that they really lose

in utility as a result We cannot, however, deal with

hypotheti-cal utilities divorced from concrete action We may, as

praxeolo-gists, deal only with utilities that we can deduce from the

con-crete behavior of human beings.12A person’s “envy,” ied in action, becomes pure moonshine from the praxeologicalpoint of view All that we know is that he has participated in thefree market and to that extent benefits by it How he feels about

unembod-the exchanges made by ounembod-thers cannot be demonstrated to us

12 Elsewhere, we have named this concept “demonstrated preference,” have traced its history, and have directed a critique against competing

concepts See Murray N Rothbard, “Toward a Reconstruction of Utility and Welfare Economics” in Mary Sennholz, ed., On Freedom and Free

Enterprise (Princeton, N.J.: D Van Nostrand, 1956), pp 224 ff.

unless he commits an invasive act Even if he publishes a phlet denouncing these exchanges, we have no ironclad proofthat this is not a joke or a deliberate lie.

pam-E UTILITYE X P OST

We have thus seen that individuals maximize their utility ex

ante on the free market and that the direct result of an invasion

is that the invader’s utility gains at the expense of a loss in

util-ity by his victim But what about utilities ex post? People may

expect to benefit when they make a decision, but do they

actu-ally benefit from its results? The remainder of this volume willlargely consist of analysis of what we may call the “indirect”consequences of the market or of intervention, supplementingthe above direct analysis It will deal with chains of conse-quences that can be grasped only by study and are not immedi-ately visible to the naked eye

Error can always occur in the path from ante to post, but the

free market is so constructed that this error is reduced to a imum In the first place, there is a fast-working, easily under-standable test that tells the entrepreneur, as well as the income-receiver, whether he is succeeding or failing at the task of satis-fying the desires of the consumer For the entrepreneur, whocarries the main burden of adjustment to uncertain consumerdesires, the test is swift and sure—profits or losses Large prof-its are a signal that he has been on the right track; losses, that

min-he has been on a wrong one Profits and losses thus spur rapidadjustments to consumer demands; at the same time, they per-form the function of getting money out of the hands of the badentrepreneurs and into the hands of the good ones The factthat good entrepreneurs prosper and add to their capital, andpoor ones are driven out, insures an ever smoother marketadjustment to changes in conditions Similarly, to a lesserextent, land and labor factors move in accordance with thedesire of their owners for higher incomes, and more value-pro-ductive factors are rewarded accordingly

Consumers also take entrepreneurial risks on the market.

Many critics of the market, while willing to concede the

expert-ise of the capitalist-entrepreneurs, bewail the prevailing

igno-rance of consumers, which prevents them from gaining the

utility ex post that they expected to have ex ante Typically,

Wes-ley C Mitchell entitled one of his famous essays: “The ward Art of Spending Money.” Professor Ludwig von Mises haskeenly pointed out the paradoxical position of so many “pro-gressives” who insist that consumers are too ignorant or incom-petent to buy products intelligently, while at the same timetouting the virtues of democracy, where the same people votefor politicians whom they do not know and for policies that theyhardly understand

Back-In fact, the truth is precisely the reverse of the popular ology Consumers are not omniscient, but they do have directtests by which to acquire their knowledge They buy a certainbrand of breakfast food and they don’t like it; so they don’t buy

ide-it again They buy a certain type of automobile and they do likeits performance; so they buy another one In both cases, theytell their friends of this newly won knowledge Other con-sumers patronize consumers’ research organizations, which canwarn or advise them in advance But, in all cases, the consumershave the direct test of results to guide them And the firm thatsatisfies the consumers expands and prospers, while the firmthat fails to satisfy them goes out of business

On the other hand, voting for politicians and public policies

is a completely different matter Here there are no direct tests

of success or failure whatever, neither profits and losses norenjoyable or unsatisfying consumption In order to grasp con-sequences, especially the indirect consequences of governmen-tal decisions, it is necessary to comprehend a complex chain ofpraxeological reasoning, such as will be developed in this vol-ume Very few voters have the ability or the interest to followsuch reasoning, particularly, as Schumpeter points out, in polit-ical situations For in political situations, the minute influence

that any one person has on the results, as well as the seemingremoteness of the actions, induces people to lose interest inpolitical problems or argumentation.13 Lacking the direct test

of success or failure, the voter tends to turn, not to those cians whose measures have the best chance of success, but tothose with the ability to “sell” their propaganda Without grasp-ing logical chains of deduction, the average voter will never beable to discover the error that the ruler makes Thus, supposethat the government inflates the money supply, thereby causing

politi-an inevitable rise in prices The government cpoliti-an blame the pricerise on wicked speculators or alien black marketeers, and, unlessthe public knows economics, it will not be able to see the falla-cies in the ruler’s arguments

It is ironic that those writers who complain of the wiles andlures of advertising do not direct their criticism at the advertis-ing of political campaigns, where their charges would be rele-vant As Schumpeter states:

The picture of the prettiest girl that ever lived will in

the long run prove powerless to maintain the sales of

a bad cigarette There is no equally effective

safe-guard in the case of political decisions Many

deci-sions of fateful importance are of a nature that makes

it impossible for the public to experiment with them

at its leisure and at moderate cost Even if that is

pos-sible, however, judgment is as a rule not so easy to

arrive at as it is in the case of the cigarette, because

effects are less easy to interpret 14

It might be objected that, while the average voter may not

be competent to decide on policies that require for his decision

chains of praxeological reasoning, he is competent to pick the

13Joseph A Schumpeter, Capitalism, Socialism and Democracy (New York: Harper & Bros., 1942), pp 258–60 See also Anthony Downs, “An Economic Theory of Political Action in a Democracy,” Journal of Politi-

cal Economy, April, 1957, pp 135–50.

14Schumpeter, Capitalism, Socialism and Democracy, p 263.